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January 13, 2000
Graham Humes served as General Director of CARESBAC-St. Petersburg from 1993 to 1995. He is a Philadelphia investment banker and a trustee of FPRI.
In the early 1990s, St. Petersburg's First Deputy Mayor Vladimir Vladimirovich Putin was a powerful figure in Mayor Sobchak's liberal administration, often regarded as acting mayor. Without his help my American-owned company would probably have disbanded. Because of his keen interest in attracting business investment to his native city, and his formidable political skills, our nonprofit company was one of the first in northwest Russia to invest in small Russian businesses.
VLADIMIR VLADIMIROVICH PUTIN IN 1994:
A PERSONAL RECOLLECTION
By Graham Humes
In June 1993, I was appointed General Director (and founder) of CARESBAC-St. Petersburg, which was wholly owned by CARESBAC, Washington, D.C., an independent nonprofit that had been formed by CARE employees to turn gifts of excess frozen U.S. butter into assistance, initially to Poland, Russia, and Bulgaria. Our charter was to accept shipments of frozen butter in St. Petersburg, sell the butter on the commodity exchange, and invest the proceeds (to be about $9 million) in non-control positions in small Russian businesses. We were to operate as a nonprofit, reinvesting any proceeds into new investments. However, Russia has had no provision for nonprofit corporations (the whole concept is confusing to them) so that we were constituted as a regular Russian corporation.
Within six weeks of my arrival, after depositing our first $2.1 million butter proceeds in a Russian bank, we were notified that something called the Russian Humanitarian Aid Commission in Moscow believed we were about to violate the law. Immediately, my Washington colleague and I flew to Moscow to meet members of the Commission.
The meeting was so disastrous that we believed our project might be terminated by their actions. Several very grumpy, self-righteous, old men laughed at the idea that investing in small companies was any remote type of "humanitarian aid." We referred them to Russian versions of the Department of Agriculture's agreements with the Russian government, which stipulated our use of our proceeds without taxation (or confiscation). These men happily informed us that if we invested $1 without their approval our entire deposits would be forfeited under a relatively new law. At the end of two hours of our stubborn attempts to appeal to them, we were completely discouraged. I asked one more question: "Is there any other way we can escape confiscation?" The chairman laughed at my naivete and chortled in Russian: "Get Boris Yeltsin to write a law exempting you!"
Thirteen months later Vladimir Putin, Mayor Sobchak, and I were toasting each other at the Mayor's favorite St. Petersburg restaurant. Prime Minister Chernomyrdin had signed a bill exempting us from the confiscation provision. And the St. Petersburg Dental Clinic #1 had $1.5 million worth of new American-manufactured Siemens dental equipment. That was the Putin-Humes deal worked out in the months following our appearance before the Russian Humanitarian Aid Commission.
Our initial steps to avoid confiscation were very disappointing. The U.S. Consulate commiserated, but seemed not interested in helping a company constituted as a Russian for-profit company, even though we were as nonprofit in our format and operation as the NGOs (Non-Government Organizations) that they regularly worked with. The U.S. State Department and Department of Agriculture said to give the Commission half the money (as similar companies had done). Half of our projected $9 million would have been insufficient capital for sustained operations, so we kept floundering.
We met one day with Richard Torrance, a New York City public relations official working for Sobchak as Deputy to the Mayor. Gingerly, my American lawyer colleague and I proposed asking Mayor Sobchak to intercede with President Yeltsin. We said we preferred to donate funds for legitimate needs in St. Petersburg rather than to build dachas for bureaucrats at their benighted Commission.
Either no one believed we really had the money, or the prospect of getting Chernomyrdin to sign ad hoc legislation was dim. We struggled up from the bottom of the bureaucratic ladder trying to get an audience with Mayor Sobchak, who was often out of town. (Deputy to the Mayor Torrance arranged his speaking trips to the United States.)
We finally had the meeting with Vladimir Putin that the U.S. Consulate said they could not arrange. With Marina Shilina, my office manager and ever- reliable translator, I explained to Putin and aides the effect that this punitive law was to have on us.
The City Hall was in the Smolny Institute, the former elite girls school that Lenin had appropriated as his headquarters in 1917. The building and grounds are majestic. Putin's office on the second floor was next door to Mayor Sobchak in a long and sparsely furnished room. Seated at the long conference table, Putin listened intently to our story. He then said he did not think there was such a law, but as a lawyer, he would check for us and call us back.
Several days later, we again went through the security checks and sat at his conference table. He told us sternly that the law was valid and that the way he read it, he could confiscate the money for St. Petersburg before Moscow got to it. But he said, with a smile: "We are going to do it your way. We will try to get you an exemption so that St. Petersburg can benefit both ways."
As Putin initiated his discussions with Chernomyrdin (through Sobchak we believed) we continued to meet with him to iron out details of our gift to the city. In conversations with Washington CARESBAC (now Small Enterprise Assistance Fund) we determined to offer to the Mayor's office about half of what the U.S. State Department had suggested we abandon, or about $2.2 million. Maybe less money might work, but unless we really got their attention, I would be on my way home with nothing accomplished. We told Putin the money had to go for a people-to-people project, which did not include funds here and there to apparatchiks.
We were told the Mayor wanted a new Dental Clinic to stop AIDS-related deaths in antiquated facilities. A German company, Siemens, manufactures such equipment in the States and had offered it to St. Petersburg at half price. I had negotiations with Siemens about what constituted half price, and the deal was cut.
Meanwhile, we were being told Chernomyrdin found opposition for our bill from a majority of his (Moscow) cabinet members. Months went by during which we could not invest. In February 1994, a shipment of tons of butter to us was detained at Customs at the St. Petersburg docks. There was great consternation as the eighteen wheelers lined up in the -20F weather, motors idling for three days, waiting for Customs' approval, which apparently was held up at the personal request of the Russian Humanitarian Aid Commission.
We had several more negotiating meetings with Putin. At the last meeting in his office, he was optimistic about getting Chernomyrdin's signature on our legislation. During our negotiations there was a phone call for Putin from the Mayor in Moscow. Putin politely excused himself and walked across the large room to his desk. When he picked up the phone we could hear Sobchak shouting. Putin smiled and held the phone at arm's length. When the noise subsided, Putin said, "I think we can both hang up our phones. I can hear you fine without it." Thus Putin confirmed our impression of the power he wielded.
In late November, Prime Minister Chernomyrdin paid a state visit to St. Petersburg to honor Sobchak's work on the new Constitution. Though he had said he could not get approval for our bill, late in the day he said to Sobchak and Putin: "What can I do for St. Petersburg?" Putin had prepared a copy of the proposed bill. He put it under Chernomyrdin's pen and said "sign this." The next morning Putin invited me to Smolny to receive my official copy of the ad hoc legislation. During the first week in December 1994, the new Dental Clinic #1 was opened with ribbon cutting by the Mayor and a round of applause for CARESBAC and its General Director.
At the celebratory dinner the next week I sat between Deputy Mayor Putin and one of his aides. Many toasts were made to CARESBAC. When I rose to toast Mayor Sobchak for his help, I compared him to successful American politicians. Then I asked why he did not ask for even more money in the style of American politicians. During the translation, Sobchak looked confused. Putin whispered in his ear. Sobchak rose, toasted me again and asked for an additional $500,000, which in fact was part of my original deal with Putin. I graciously toasted Sobchak and said "You've got it." Putin thoroughly enjoyed the exchange, especially since many in the room thought I had given a new gift.
We did not meet with Putin again, but we had significant negotiations with his office concerning our proposal for a direct sale of butter to City hospitals. Many of our Russian friends became aware of our Putin dealings and asked us what we thought. In contrast to many dealings we had with officials from the City and the surrounding state of Leningrad, Putin had been direct and very businesslike, not lacking in humor but maintaining a control of each meeting that gave a strong impression that he could be a difficult foe. Not one Russian connected with his office ever suggested any variant of our negotiations which might have diverted any money from the Dental Clinic. Russian friends of ours said then and affirm today that Putin had earned widespread respect for working for the best interests of the City and for maintaining a low profile. Unlike Sobchak, he has never appeared to benefit personally from the job. He had and has almost no detractors which is phenomenal in today's Russia.
In the spring of 1996, Vladimir Yakovlev, the other First Deputy Mayor, junior to Putin, ran against Sobchak for Mayor. Sobchak had made enemies by that time and had spent much time in Moscow chairing the Commission to write the new Constitution. Some of our friends who had earlier backed Sobchak switched to Yakovlev. Putin backed Sobchak, one of the reasons Sobchak describes Putin as above all loyal.
Most of the U.S. press coverage of Vladimir Putin ignores his ten or more years in St. Petersburg, from the time he left the KGB in East Germany to return to St. Petersburg Law School for a degree in International Law and to become Assistant on External Affairs to the Principal of Leningrad State University. His mentor was Professor Sobchak who recruited his recent graduates for his Mayoralty campaign. During that campaign Putin was an economic advisor to the candidate and then became First Deputy Mayor. Eight years later, when Yakovlev was elected Mayor (now called Governor), Putin left the administration. He was then appointed Head of the Chief Auditing Department of the President of the Federation. In the spring of 1998, he became the First Deputy of the Head of the Administrative Office of the President. Soon after, he was appointed Director of the Federal Security Service, the former KGB.
In my experience with Putin, I considered him to be professional and skilled in political tactics, enabling him to dance around the old apparatchiks in order to achieve a St. Petersburg opening for foreign capital to benefit fledgling Russian businesses. To "Peterburgers" he is a highly cultured man of the new generation who should be given credit for his record of public service.